The metaverse is a virtual world that, among other things, lets people interact with each other using digital avatars. And when people interact, business and money are a natural component.
Web3 has embraced the metaverse, and its tools are enabling the use of cryptocurrency in a world where traditional money can’t function. In the metaverse, NFTs can be used to track digital property rights and cryptocurrency is used to fund platforms and reward users. This article will dive into crypto’s benefits, drawbacks, and uses in this climate, while answering the question: What is metaverse crypto? Also, be sure to read: what is the metaverse? for an intro to the metaverse.
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Benefits of metaverse crypto
The metaverse offers boundless possibilities for exploration and innovation. Metaverse-centric cryptocurrencies provide more security and flexibility than fiat, thanks to the public, immutable, and encrypted nature of the blockchain. As the metaverse continues evolving and more people become interested in using it, crypto will play an essential role in its development. Here’s a look at some of the factors driving the development of this new online world.
Your identity, progress, and assets in the metaverse are tied directly to your cryptocurrency wallet. And bad actors can try to obtain your identity or assets by hacking your cryptocurrency wallet. However, hackers are unlikely to succeed unless you’ve shared your passphrase or publicly shared your wallet key using an account that’s tied to your real identity.
Since metaverse crypto is decentralized and maintained by a series of network nodes, it’s nearly impossible for a single entity to manipulate it. Additionally, transactions are public and immutable, so users needn’t worry about falsified transactions.
Cryptocurrencies enable borderless transactions via the world wide web, meaning you can trade virtual property globally. By using a single central cryptocurrency, metaverse platforms eliminate the hassle of exchanging one cryptocurrency or traditional currency for another.
Metaverse cryptos also benefit from the use of self-executing smart contracts. These on-chain applications eliminate the need for centralized intermediaries when users transact.
Blockchain technology enhances transparency by displaying transactions in a public distributed ledger. The public nature of cryptocurrency transactions makes it harder for bad actors to inflate digital land and item prices. Often, metaverse cryptocurrencies are used to govern changes within a project. Smart contracts manage these governance votes, and results are publicly available.
Use cases for metaverse crypto
Web 2 metaverse projects use fiat payments or off-chain digital currencies like Robux for items, land, and experiences. While you can use fiat to pay for things and fund a project’s development, it lacks the versatility of smart-contract-capable cryptocurrencies. These on-chain digital assets have all the same uses as fiat, plus users can stake them to govern decentralized metaverses.
Digital currency can be used for loans to buy metaverse land. Banks like HSBC and JPMorgan have already ventured into the metaverse, with both owning virtual land.
According to Suresh Balaji, chief marketing officer, Asia-Pacific, HSBC: “We are making our foray into the metaverse, allowing us to create innovative brand experiences for new and existing customers. We’re excited to be working with our sports partners, brand ambassadors, and Animoca Brands to co-create experiences that are educational, inclusive and accessible.”
These banking behemoths’ foray into the metaverse could signal a bridging of the gap between financial services in the physical and virtual worlds. As more banks get involved with the metaverse, it could become easier for web3 users to trade traditional financial instruments with virtual money.
Online shopping is becoming a key feature of the metaverse. Users can try virtual clothing for their avatars, explore digital malls, and engage with brands from the physical world. For example, Adidas released an NFT collection in 2021 featuring wearable accessories in the Sandbox. NFT buyers received the physical merchandise tied to the NFTs, transcending the boundary between the metaverse and the real world.
Retail giant Wal-Mart filed seven trademarks in 2021 related to selling virtual goods in the metaverse, NFTs, and cryptocurrency assets. While there are no official details about these plans, stores like Wal-Mart could use virtual shops and crypto assets as loyalty rewards, incentivizing customers to hold their digital assets by offering discounts in their physical stores.
Often, crypto is used to govern metaverse projects. For example, Decentraland, a popular Ethereum-based metaverse with virtual reality elements, lets users create and vote on proposals if they hold certain tokens:
MANA is the token used to pay for goods and services in Decentraland.
NAMES are easy-to-remember public addresses for trading crypto.
LAND is a virtual plot of land.
Like other DAOs, votes are weighted based on your token balance at the time the proposal is created.
Challenges of metaverse crypto
There’s no specific regulatory framework for metaverse applications, but many real-world laws apply to these virtual and augmented reality worlds. Copyright and trademark laws apply to digital creations like those in the metaverse. In June 2021, Damon Dash was sued by Roc-A-Fella Records for selling an NFT featuring a Jay-Z album cover. Similar lawsuits could be filed against those who create metaverse versions of copyrighted materials.
Tort, contract, and defamation laws could also apply to those in the metaverse. The problem is that many operating within the metaverse are entirely anonymous. Anonymity can be beneficial, but it often makes it impossible to sue bad actors.
As the Securities Exchange Commission continues to crack down on unregistered securities in the crypto space, we may see more metaverse-related SEC lawsuits. Per the SEC, NFTs are considered securities if there is an “investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.” In October 2022, Slotie, a project operating gambling games in virtual casinos, was sued by state securities regulators for offering profit-sharing NFTs considered to be unregistered securities.
Many metaverse advocates want to see millions of people playing games and interacting in these virtual worlds simultaneously. Unfortunately, this would require a robust, vast infrastructure that is not yet available. Additionally, more concurrent users will result in more transactions. Metaverse applications must be built on DLTs that can support many transactions simultaneously without exorbitant fees or lengthy transaction times.
Web3 metaverse users are usually anonymous, but this isn’t true in applications like Meta’s Horizon Worlds. Virtual reality headsets can gather vast amounts of data about users. This data can be sold to advertisers or obtained by bad actors if Meta’s servers are hacked.
What is metaverse crypto?
The metaverse has been around for over a decade, but it’s still in its infancy in many ways. Over time, there will be more metaverse users, virtual businesses, and, potentially, regulations. It may someday become an integral part of the global economy. Metaverse crypto will play a significant role in the governance and operation of these growing virtual worlds. Still, for the metaverse to scale, it must be built on a secure DLT with low fees and lightning-fast transactions.
Hedera has embraced the metaverse, giving grants to more than 50 metaverse-centric projects in 2022. Hedera’s gossip protocol reaches consensus on transactions faster than other DLTs can manage. Additionally, the Hedera network has low, predictable fees, meaning metaverse users needn’t worry about high costs during peak traffic times.